Case study: Unilever

Summary:

Unilever was one of the first UK-listed companies to allow its shareholders to vote on its climate transition plan.

The comprehensive and ambitious plan is considered to be best practice. It includes independently verified and science-based emissions reduction targets with an executive remuneration plan explicitly linked to achieving those targets.

The plan was approved with a 99% vote at their AGM indicating strong investor support for ambitious climate action.

History

Unilever’s CEO Alan Jope first raised the existential issue of climate change relative to the company’s plans for progress to his board of directors in November, 2020. Following on from the kind of sustainable business leadership developed under previous CEO, Paul Polman, he pitched the need for a comprehensive Climate Transition Action Plan to be put to shareholder vote, citing his introduction to the Say on Climate initiative as the driving force behind the push for proactivity. 

Met with an understanding from the board that the proposal could encourage increased transparency and accountability, strengthening the dialogue with investors around the path to net zero, the company had its transition plan approved by its shareholders within a few weeks. Unilever had shared the plan with its shareholders and allowed them to signify their support through a non-binding, advisory vote at its Annual General Meeting. The ambitious and comprehensive plan was approved at their AGM with 99.59% of the votes cast in favour, indicating strong investor support for climate action. 

One of the first companies to voluntarily and publicly commit to putting climate plans to a shareholder vote, Jope cited in the press release the profound threat to society, governments and entire company value chains that climate change poses as the incentive for Unilever’s pioneering move.

“As governments around the world wake up to the full implications of the climate crisis and start to regulate and price emissions, we are confident that early and ambitious climate action will drive superior performance and create value for all our stakeholders. We hope that by setting out our plan, and the assumptions underpinning it, investors will share our confidence – and other businesses will start to follow suit.”

The plan

The Unilever Climate Transition Action Plan sets climate-related targets that are split into five broad areas that have an influence on the carbon footprint of the company. These are:  (i) operations; (ii) value chain; (iii) products; (iv) lobbying and advocacy; (v) governance. We have highlighted some of the notable targets from their plan below:

Operations

• 100% renewable grid electricity – this was achieved in 2020.
• 100% renewable heat sources by 2030
• 50% reduction in food waste by 2025.

Value chain

• Zero deforestation by 2023 in key commodity crops including palm oil, tea, soy and cocoa;
• 25% recycled plastic in products by 2025
• 100% electric vehicles or hybrids in their global car fleet by 2030.

Products

• Up to 60% reduction in product GHG emissions through concentration and compaction
• €1 billion annual sales from plant-based meat and dairy alternative by 2025 and 2027
• Unilever will share the carbon footprint of every product it sells

Lobbying and advocacy

• High-level advocacy in support of the goals of the Paris Agreement
• All direct lobbying relevant to climate policy is consistent with their stated objectives in delivering the 1.5-degree ambition of the Paris Agreement
• Disclosure of all principal trade associations and climate policy positions

Governance

• Unilever will submit an updated CTAP for shareholder approval at the AGM every three years
• Climate performance linked to executive remuneration – 25% of the vesting of their long-term incentive plan for management is determined by performance against their sustainability commitments (which include specific climate targets as also reflected in the Climate Transition Action Plan). 
• Continued commitment to report in line with the Task Force on Climate-related Financial Disclosures (TCFD)
• Creation of a fund that will redirect brand marketing investment from 2021 (€1 billion over the next decade) into consumer-relevant climate and nature programmes

Unilever published a comprehensive and ambitious plan, exuding confidence perhaps derived from its prior success in reducing the emissions under its direct control. According to Marc Engel, Unilever’s Chief Supply Chain Officer, the company reduced absolute manufacturing CO2 emissions from over 2.7 million tons in 2008 to less than 700 thousand tons in 2020, despite growing as a company during that time. 

The company’s Climate Transition Action Plan has had several successes and can provide some valuable guidance to other companies in establishing and communicating their own “net zero by 2050” plan. Unilever has made significant progress towards decarbonising its operations, which was their first ambition. “We achieved 100% renewable grid electricity globally last year, so our focus is now on heating and cooling: transitioning to renewable heat sources in our factories and other sites, while removing HFC refrigerants from our cooling systems”.

Secondly, through their value chain, the company’s plan proposed a reduction of emissions both up and downstream, such as by encouraging suppliers to set their own science-based targets and working with logistics partners to shift to lower emission transport options. Thirdly, by looking at integrating climate action into their brands and innovation, whether by reducing the emissions of their laundry products through concentration and compaction, responding to consumer demand for plant-based foods, or using the influence of their brands like Hellmann’s to reduce food waste.

Then finally, through the wider influence they have on society. As the lion’s share of Unilever’s value chain emissions falls outside of their direct control, societal change is critical to achieving targets and reaching Paris Agreement goals. Unilever engages with customers to encourage them to adopt more sustainable practices, such as washing clothes at lower temperatures. Communication is a key part of the equation, and Unilever is using the authority of their voice to drive transformational consumer and societal change, independently and through industry partnerships such as the Carbon Pricing Leadership Coalition and Transform to Net Zero.

Unilever has had strong governance in place to ensure that these targets are met, with the board taking overall accountability for risks and opportunities, including climate change, and Jope having the ultimate responsibility for oversight of the company’s climate change agenda.

Challenges

Unilever has faced some challenges and setbacks in its transition plan, many of which pertain to supply chain limitations. The company has struggled to decarbonise its supply chain, which accounts for the majority of its carbon footprint. Unilever has set a target to eliminate deforestation from its supply chain by 2023, but progress has been slow and time is running out for that commitment to be met, with only 85% of its palm oil traceable to the plantation level in 2020.

In an interview with Forbes in 2021, Jope also noted that one reason some object to a shareholder vote on a climate transition plan is the mistaken notion that management is trying to pass accountability for the company’s climate strategy to its shareholders. “Nothing could be further from the truth,” Jope emphasised. “Strategy formulation, including the integration of our climate strategy into our corporate strategy remains the responsibility of management, with the board holding us accountable for delivering on it.”

What’s Next for Unilever

Unilever’s Climate Transition Plan is an ongoing initiative, and the company has set ambitious goals for the future. Their focus in the 2020s and 2030s is on emissions reduction, not offsetting. 

Unilever’s Climate Transition Action Plan is a good start for the company but still falls short of best practice. A best practice CTAP should, at a minimum include:

• Science-based short-term targets for scope 1, 2 and 3 emissions, which have been independently verified by SBTi to be aligned with a 1.5-degree pathway
•  Credible use of offsetting only if strictly necessary, as per the VCMI Claims Code of Practice, with high quality claims (ICVCM Core Carbon Principles verified)
• Public disclosure of positive lobbying for climate policy and commitment to lobby (directly and through trade associations) for the specific policies required to support the transition. Companies must also push to reform or leave trade associations that are mis-aligned with the goals of the Paris Agreement.
• At least 20% of executive remuneration should be explicitly linked to transparent and measurable climate related targets
• Capital expenditure aligned with the Paris Agreement, including an appropriate allocation of low carbon investment to finance the transition
• Independent auditing of emissions and annual performance reported to shareholders

Unilever is one of the leading companies with a clear transition plan along with commensurate  resource allocation and capital expenditure to implement it right through its business and value chain. The company continues its efforts to join the dots between sustainability and financial performance, paving the way for greater corporate responsibility around climate change.